I am often asked by companies, “Can I dock an exempt employee’s pay?” The simple answer is “yes”, but there are only five times when it is legal to do so.
First, you must classify employees either as exempt, which means they are exempt from the Fair Labor Standards Act (FLSA) for overtime, or non-exempt, meaning they must receive overtime according to the FLSA.
Once you have properly assigned an exempt classification to your employee, you should pay special attention to these employees and their rights under the FLSA as it pertains to docking their pay. Whether an exempt employee works 50 hours in one week or 10 hours in one week, you must pay them the same paycheck each time. Deducting pay from an exempt employee for any reason other than those below will result in the employee losing their exempt status and they will automatically become non-exempt and eligible for all overtime. Not only are you liable for all overtime moving forward, but you must also go backwards (in some cases up to three years) to determine how many hours over 40 hours in a given work week this employee worked. You really don’t want to make this costly mistake.
Here are the five times when it is legal to deduct pay from an exempt classified employee:
1. First and Last Week of Work
You only have to pay exempt employees the actual number of hours that they work in their first week of employment and their last week of employment, provided they did not work full weeks during either of those times.
For example, A new exempt classified employee starts to work in the middle of the week – say on a Wednesday. As the employer, you would only have to pay the exempt employee for the hours worked on Wednesday, Thursday and Friday. Since there was no work on Monday and Tuesday, you do not need to pay this employee anytime for those days. Similarly, if it is the last week of employment and the exempt employee leaves your organization on a Tuesday, you only need to pay this employee for the time worked on Monday and Tuesday. For all other times that an exempt employee works a partial week, you must pay them for the entire week.
2. Deductions Ordered by a Court
These aren’t considered real deductions because the employee is still earning the same amount of money each week. Instead, it is that the paycheck is smaller because the employee is under a court order for child support, alimony or to pay off debts. As the employer, you must deduct what the law requires and send that money to whomever or wherever the court directs. There are times when employees will not be very happy with you for doing this to them, but you must make it very clear to the employee that this is not the organization’s decision, it is an order that is mandated by the law and you are only following what the courts have ordered. You are not actually docking the employee’s pay, you are just automatically paying outstanding debt(s).
3. A Full Day Off for Vacation
If your employee has used all vacation time either accrued or earned and wants to take off a day, it is possible for the employee to take off the day with approval from their Manager. If you allow this unpaid day off, you must remind your employee that they have utilized all of their vacation time and this day will be unpaid.
If you grant this unpaid day to the employee, you must also remind your employee that they are not to do any work on this day off. Doing as much as 15 minutes of work can trigger pay for the entire day. Because exempt employees are paid the same, regardless of the number of hours they work, doing just 15 minutes of work means that they get paid for the whole day. As an employer, you must ensure that your employee will not perform any work during this time off.
If the employee wants to take a “true” sick day and you have a policy on sick days that allows days off, you must pay the non-exempt employee for the day if all sick days have not been used.
These are separate policies that apply strictly to vacation and sick days. If you have Paid Time Off, then unless all of the paid time off is utilized, you must pay the employee for the day.
4. A Full Day Off (Other)
According to the U.S. Department of Labor, Wage and Hour Division, you can only deduct a full day off for reasons other than illness if you not only have a bona fide plan, policy or practice of providing compensation for salary loss due to illness. Remember, your employee may be subject to Family Medical Leave, Workers’ Compensation Pay, Short and Long Term Disability. Be very careful when you “dock” an exempt employee’s pay for any type of illness.
Additionally, you also can’t just decide to dock an exempt employee’s pay when you’ve suspended them for a rule infraction. If the exempt employee has worked other days in the same week as they are suspended, then you must pay them for the entire week, even though they are suspended. Again, if you deduct one day from the week, you have invalidated the Exempt Status for the employee.
5. Family & Medical Leave Act (FMLA)
If you have an employee who is out for several weeks on FMLA, it is obvious that you do not have to pay the exempt employee during that time. In the State of CT, FMLA is unpaid time. The employee is gone for full days, and it’s part of a bona fide plan.
But, what about intermittent FMLA? This is when an employee has been approved to take a few hours off at a time to deal with medical problems whether for their own or a qualified family member. FMLA specifically allows you to deduct exempt employee time when they use FMLA. So if your employee needs two hours off each week for dialysis treatments, you don’t have to pay them for that time. However, there is a caution on this deduction. Because exempt employees are paid for the job and not by the hour, if your employee is still working a full 40 hours and you are deducting a half day’s pay each week when the employee goes to the medical appointment, you are legally right, but may be morally and ethically wrong to deduct the pay. Consider the culture of the organization when making these kinds of decisions.
In general, just remember not to deduct anything from an exempt employee’s salary unless it is for one of the above five reasons. If, in your organization, an exempt employee takes a few hours off during the middle of the day, comes in late, or leaves early, you can deduct from the vacation or personal time or PTO time, proceed with caution. Do not single out one person for doing this and deduct from the time off. This is discriminatory and can get you into more trouble.
If is not uncommon to allow an exempt employee to take a few hours off during the week, because they usually work more than the required 40 hours, then don’t deduct the time by covering it with paid time off.
The Fair Labor Standards Act states that you can pay anyone on an hourly basis, but if you do, you must also pay them at time and one-half for any time worked after 40 hours in a given work week, even if they qualify for the exempt exemption.
Remember that exempt employees are hired to do the job and not to work specific hours. Treat them as responsible professionals and chances are that everything will work out in the end.